At this point, abandoning the financial bailout might be the best option.
On Jan. 12, former President George W. Bush agreed to ask Congress to release the remaining $350 billion of the $700 billion Troubled Asset Relief Program (TARP) at President Barack Obama’s request.
According to the BBC, Obama believes “the financial system, although improved from where it was in September, is still fragile.”
Some oppose dispersing the rest of the money because of controversy surrounding the lack of oversight. Despite the opposition, Obama said “the need is imminent and urgent,” according to the New York Times.
The Associated Press reported that “no bank provided even the most basic accounting for the federal money” and some said “the money couldn’t be tracked.”
Originally, the bailout was designed to entice banks to continue lending by covering their losses from sub-prime mortgages. With cash on hand, the banks were supposed to continue making loans to businesses that rely on credit to keep them from going under.
However, no one knows if that is actually happening because the banks will not disclose how the money has been used. To the contrary, many of the “stronger” firms that received bailout monies are using them to buy up “weaker” firms.
This might make it sound like the stronger firms are doing their noble duty and helping out the little guys, but in reality they are becoming more monopolistic, which means higher prices for consumers later on. Adding insult to injury, these firms have been doing this under our own noses — with our tax dollars.
While Obama has claimed he wants increased oversight in the plan, his call for urgency in having the funds dispersed is wrong.
Human beings existed for thousands of years without banks. If money is not pumped into our banking system within a matter of weeks, the sky will not fall.
Though it’s true that some businesses may collapse without the money from these funds, it is irresponsible to hash out another ill-advised plan under pressure. Besides, the businesses that do fail will serve as a valuable lesson about what happens when companies thrive on credit and operate beyond their means.
Most people seem to have forgetten that businesses collapse on a regular basis.
Business owners and stockholders know risk is involved when they invest in a business. It’s like gambling. Just because the chips are down does not mean they deserve a bailout at taxpayers’ expense. Banks are businesses, too, and should not be treated any differently. The only difference is that they are buying and selling money.
The only stakeholders deserving of compassion are those whose situations are out of their control — stockholders losing retirement investments and average employees who may lose their jobs.
The entire bailout boils down to living beyond our means as individuals, businesses and a nation. And the American government is setting a bad example, as it lacks the money to continue funding these bailouts.
Consequently, the United States is selling bonds to creditors in other countries to obtain the bailout funds to avoid raising taxes. The end result is a budget deficit, which is estimated to be in the trillions this fiscal year, according to Reuters.
Sooner or later, the America’s lenders may say “Enough!” If that happens, some possible scenarios include a low-value dollar, rising interest rates and/or inflation resulting from a trillion-dollar budget deficit, according to Reuters.
At this point, the remaining funds should not be touched unless they are used to support the workers who have been or will be laid off, or to create sustainable American jobs instead of jobs that can be outsourced.
If the lesson to be taken from this crisis is not to live on credit, then people need jobs instead of credit cards to support themselves. In turn, businesses have to be able to sustain themselves through sales instead of loans.
The only way that will happen is if people have money to spend and businesses make good management decisions to operate efficiently.
If Obama plans to get us through this economic challenge, he will need to treat it like a marathon and not a race — which means learning from our mistakes and not jumping the gun on key issues like another Bush administration.
Jeremy Castanza is a senior majoring in economics.